Explanations
A participation loan is a type of commercial loan where the lender receives an ownership or income interest in the subject property in addition to the repayment of the loan. In the given scenario, the lender’s condition of receiving a 2% ownership interest directly aligns with the characteristics of a participation loan.
Here’s why the other options are not applicable:
A package loan combines real and personal property as collateral for a loan.
A take-out loan is a long-term, permanent financing used to pay off a short-term construction loan once a property is completed.
The sources do not directly define “open-end loan,” but it generally refers to a loan arrangement allowing the borrower to re-borrow funds up to a certain limit, which is different from a lender taking an ownership interest.
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